For service members pondering early retirement, costs can pinch home budget

Amid the ongoing exit of U.S. troops from Afghanistan, more service members are mulling a shift to the civilian work force and asking the key financial question: What will I miss if I walk away from my military pension?

Unlike private-sector jobs where employees become partially vested in their company’s pension no matter how long they’ve held their positions, service members pocket no pension payments if they exit the military before logging 20 years. (If they remain in the armed forces for 20 years or more, service members receive up to 50 percent of their base salary upon retirement).

“I think that question is being asked more often now because of unknowns on both sides – people wondering how the drawdown will affect them and, on the other side, those who are seeing a lot of instability in civilian job market,” said Kim Lankford, a writer for Kiplinger, the personal finance magazine, and author of "Kiplinger's Financial Field Manual," sent to military bases around the world. She also is married to a 17-year Army doctor.

According to U.S. military organizations that Lankford covers, 83 percent of service members “don’t make it to 20 years — which means that only 17 percent qualify for the pension,” she said. “There’s a lot to consider when deciding whether or not to stay.”

A corporation may be able to outbid the military when it comes to an ex-soldier’s new salary. But to truly calculate that wage rate, service members need to know what their sacrificing in taking that civilian paycheck, Lankford said.

For example, during their careers, thousands of military folks are temporarily stationed in locales without a state income tax, like Florida and Texas. Even when they later are transferred to bases where state taxes are levied, service members are allowed to retain their residency in the non-tax states. That perk ends with a military retirement.

When it comes to health care, military retirees (people who stay more than 20 years but not yet age 65) pay a small premium for Tricare Prime - currently $230 per year for individual coverage and $460 per year for families (and increasing to $269.28 per year for individuals and $538.56 per year for families after Oct. 1, 2012), according to Lankford. (Disabled service members get health care through the U.S. Department of Veterans Affairs.)

Compare that to the average civilian family pays about $15,073 a year for health coverage, according to the Kaiser Family Foundation. The average individual pays about $5,429 annually. While employers generally foot 60 to 80 percent of that bill, workers pay for the rest.

“All those deductions add up,” Lankford said. Veterans who bid farewell to the military “are often very surprised to learn that civilian jobs in higher dollar amounts than military jobs can actually leave them less take-home pay.”

One other major decision for troops considering short military careers surrounds the G.I. Bill, which now pays for a veteran’s college costs at up to $17,500 per year. That benefit can be transferred to a service member’s children if he or she spends six years in the armed forces — and is willing to commit to another four-year stint, Lankford says.

Then there are the housing-cost breaks military members enjoy. (For those who live on base, housing is free). Service members who rent or own their own homes receive a tax-free housing allowance than can exceed $2,000 per month depending on their pay grade, their number of dependents and the city in which they live.

“If a service member is thinking about leaving,” Lankford said, “they should be sure to include the loss of that tax-free allowance when calculating their new civilian salary.”